“Flash Boys”-like trading manipulation is rampant on certain cryptocurrency exchanges, according to a paper from researchers at Cornell Tech and several other universities.
Special arbitrage bots are anticipating and profiting from ordinary users’ trades on decentralized exchanges, which let them trade more directly, the authors said in a report released last week. The firms that deploy the autonomous trading programs manage to get priority ordering by paying higher fees, and use that advantage for practices such as front running, in which traders can see orders from others and manage to place their own first.
While decentralized exchanges — called DEXes — still account for only a small fraction of overall trading volume, their usage is expected to grow, thanks to efforts of companies like Binance, the world’s largest centralized crypto exchange. Binance is building out its own decentralized exchange, and many other centralized crypto exchanges are following suit. What’s more, similar practices are likely rampant on centralized crypto exchanges as well, Ari Juels, a professor at Cornell Tech, said.
“We have no idea what the extent of the malfeasance is on centralized exchanges,”
he said in a presentation last week during a blockchain conference at Cornell Tech’s New York City campus. “If we extrapolate from what we’ve seen on DEXes, it could well be on the order of billions of dollars.”
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